Brazilian Finance Minister Fernando Haddad recently introduced a proposal calling for a 2% annual tax on the ultrawealthy. Haddad has said that this would involve taxing around 3,000 individuals on the planet who hold some $15 trillion in wealth and who pay very little tax. Other members of the Group of 20 have backed this proposal, including Haddad’s French counterpart, Bruno le Maire. Haddad noted that their ambition is to succeed in taxing wealth on the basis of assets.
But in a May 20 article in the Wall Street Journal, Treasury Secretary Janet Yellen said the United States opposes the adoption of an annual global wealth tax on billionaires. Her comments align with the United States’ longstanding values of capitalism, entrepreneurship and achievement regardless of background or origin, says Rick Nott, senior managing director at Angeles Wealth Management. He believes this stance reflects America’s unique economic spirit, which continues to attract talent and innovation from around the world.
Effect of Global Tax
A global tax could result in a redistribution of wealth, says Howard Morin, co-founder and partner at Helium Advisors. Assuming a global wealth tax would raise hundreds of billions of dollars, it could be applied to infrastructure, medical and disaster recovery efforts throughout the world. With so many plans to combat climate change, the dollars could also be appropriated to contribute to that global effort. In Morin’s experience, the non-G20 countries are usually the ones bearing the brunt of these crises around the world.
Disparity in Wealth
How do we balance the “American Spirit” with the economic consequences of uneven financial success and ensure success in the next generation? Many advisors wrestle with this very topic on a smaller scale, notes Nott:
- How do financially successful individuals create an environment of achievement in the next generation without disincentivizing them?
- How do parents raise resilient children when growth requires failure and pain, and parenting requires nurturing and care?
- How does a business owner encourage an ownership mentality in the future leaders of a company for which they don’t have any ownership?
He concedes that there is no simple answer to these questions. They require a difficult balance.
A Better Way?
While the proposal noted that governments should promote equality through tax policy, one could argue that this should be done on a country-by-country or regional basis and not via an arbitrary global levy on the rich. Morin agrees with Secretary Yellen that the thought of a "global arrangement" via some form of redistribution seems a bit murky and fraught with potential peril.
Other Initiatives
President Joe Biden has considered other ways of taxing high-net-worth individuals. For example, his 2025 Green Book included a proposal for a minimum 25% tax on taxpayers with net assets over $100 million. He also approved funding for the Internal Revenue Service to crack down on wealthy individuals and corporations who are delinquent in paying their taxes.